NEW DELHI: Foxconn, the world’s largest contract manufacturer and poster boy of the government’s Make in India project, has asked nearly a fourth of its 8,000 factory workers to go on paid leave for two weeks after last month’s demonetisation of high value notes sparked a severe cash crunch that saw sales slump almost 50%, forcing the company to slash production by half.

The government’s move to ban Rs 500 and Rs 1,000 notes from November 9 has had a domino effect on the mobile phone industry, where a large majority of mobile phones are bought for less than Rs 5,000 and most of the transactions happen through cash. Consumer purchase power has been reduced dramatically – mobile phone monthly sales halved to Rs 175-200 crore post demonetisation – and sales revival is not looking up, as was perceived earlier, industry insiders said.

Leading local players including Intex, Lava and Karbonn are planning to lay off or bench 10-40% of their workforce, as they cut production to control inventory pile-ups in retail channels with consumers delaying cash purchases after Nov 8 demonetisation sucked out cash from the market.

Lava is shutting down its plant – which employs around 5000 people -for a week starting December 12, while others could soon follow, industry insiders said.

Foxconn – which makes devices for China’s Xiaomi, Oppo and Gionee, besides Infocus and Nokia – along with Lava, Intex, Karbonn and Micromax account for around 50% of the handsets assembled in India, say experts.

“The four plants in Sri City (Andhra Pradesh) are operating at 1.2 million capacity a month, down from 2.5 million that it has,” a senior industry executive aware of Foxconn’s manufacturing details said, asking not to be named. The company has put about 1,700 of its workforce on the bench, or on forced leave for two weeks during which they will get paid but the number of days would be cut from their earned leaves. Benching may continue if production – directly related to consumer demand – does not come to the 2 million a month levels by January, the person added.

Foxconn did not respond to ET’s query seeking confirmation. “The first week of December has been really bad and now we're thinking of cutting production and deferring imports of semi-knocked down (SKD) kits,” Unnikrishnan M Thazhath, product head at Intex Technologies said. Another senior executive at Intex told ET about 500-600 people will be laid off in January at the company’s Noida plant.

Lava and Intex together produce more than 5 million phones a month and employ more than 10,000 people. “All 5,000 people who work on the factory floor have been asked not to come for a week from Monday, as entire production of smartphones and featurephones is being shut for that time,” a senior executive at Lava International told ET, asking not to be named.

Sources at Karbonn that has factories in Noida and Bawal, Haryana, say the company may even lay off 1,200 to 2,000 people soon. A senior executive from the company said the management does not expect normalcy in consumer demand to return for another 4-5 months and therefore about 40% of the workforce maybe laid off. “The decision will be taken by the month-end,” he added. The company, however, declined to comment on the matter.

Micromax has already slowed production in Rudrapur and Telangana facilities. Industry insiders said they expect demonetisation to have two to three months impact on current manufacturing activities.